Using your personal card for business expenses can be a bad idea
By Tamara E. Holmes | Published: August 11, 2017
Personal Finance WriterWrites regularly about personal finance and health
If you’re like many new entrepreneurs, you may still be
Using your personal credit card for business purposes rather than a business
credit card. But advantage often comes at a price, and you may be missing out
On business perks that could hasten your company’s growth.
“A common myth is that only large companies need business
Credit cards, but benefits like expanded buying power, spending rewards and
Tracking assistance can help fuel business growth no matter size or
Industry,” says Audrey Henley, senior vice president of American Express OPEN.
A 2015 American Express survey of small-business owners
Found that 63 percent of those with fewer than 100 workers reported having a
business credit card. Here are some signs that you should consider joining
1. Your accounting could use an overhaul.Chris Van
Patten, owner of New York City-based website application
Developer Van Patten Media, used a personal credit card when he first started
His company, but realized he was paying for it at tax time.
Of expenses on my personal card and making sure the company was properly
reimbursing them had gotten jumbled and confusing, which led to me avoiding it
Entirely and personally eating the cost on many expenses,” he says.
To a company credit card allowed him to see all of his business
Purchases in 1 place and made it easier for him and his accountant to track card spending
Using business accounting software. Some small businesses may even run into
Problems with the Internal Revenue Service if they do not keep business and
personal expenses separate.
WHEN IT MAKES SENSE TO OPEN A BUSINESS CREDIT CARD
To keep personal and business expenses separate.
You’d like to give employees limited access to credit.
You may get more flexible repayment terms, higher credit limits.
You’re ready to begin building a business credit history.
2. You have
Cash flow issues. Many small-business
Owners are all too knowledgeable about late payments and other cash flow disruptions.
Since business cards are targeted toward business owners, they tend to offer
Terms that are particular to that community’s demands. Some may even give company
Owners longer to pay.
For example, American Express’s Plum Card allows
Business owners place their own due date, get a 1.5 percent reduction when they
pay early, and take up to 60 days to pay with no interest added, Henley says.
3. You need to set limits on worker charges. One of the most overlooked features offered by
Many small-business cards is the ability to issue employee cards with spend
Controls and alerts, says Buck Stinson, head of small-business cards at Capital
That’s one of the biggest perks of using a small-business
Credit card for AJ Saleem, the owner of Houston-based tutoring firm Suprex
Tutors. Three of his eight workers make work-related purchases.
“The ones who
Have access to credit cards have a $100 monthly spending limit, and I monitor
that every cycle,” Saleem says. “When they have a purchase over that amount, I
Can temporarily increase the limit.”
4. You want to
Expand your buying power. Business cards typically offer generous rewards, such
As airline travel miles, and business-specific incentives,
Including savings on office supplies and transport.
Aaron Udler, president
Of software training firm OfficePro in Gaithersburg, Maryland, looked
To get a business credit card that will give him the maximum rewards. Since the
Company spent plenty of money in office supply stores, he chose a card which
Offered 5x points on these purchases.
Some small-business owners use business credit cards to
make strategic purchases. For instance, according to Stinson, one
Of Capital One’s Spark Business card customers charges all business expenses
And uses the 2 percent cash back rewards and “accumulated enough rewards to
Buy a new Sprinter van, which is going to directly help grow their business.”
“The business card let me start building credit
For the business separate from myself.”
5. You want
higher credit limits. Business cards often carry higher credit limits than
Personal credit cards since businesses have more expenses than an individual,
says Henley. Some even go beyond that.
For example, some American Express
Business card products, such as the Blue Business Plus and SimplyCash Plus
Cards, let particular cardholders spend above their credit limits, according to
Factors such as the card member’s credit history and spending patterns.
6. You want to
Start building a credit history for your company. When David
Waring, co-founder of New York-based FitSmallBusiness.com, started his first venture,
He used a personal credit card which was devoted entirely to business expenses.
While this allowed him to keep things separate, as the company grew bigger and
He switched from a sole proprietorship to an LLC, he knew he might eventually
Want to apply for bigger loans and might want a strong business credit profile.
“The business card let me start building credit
For the company separate from myself,” he says.
Getting approvedGetting approved for a small-business credit card is similar to getting approved for a personal card.
You’re ready to apply, anticipate the card issuer to consider lots of the exact factors
Required for consumer cards, including your credit score, debt amounts, invoice
Payment track record and creditworthiness,” Stinson says. They may also require
You to include your business’s tax ID number, standard industry code and legal
There’s one important thing to remember: A
Business credit card does not take away your personal responsibility for the
debt. Credit card issuers generally have the
Company owner guarantee the debt, so if you default, the issuer would report it
To commercial credit agencies, which could hurt your credit score, warns
small-business adviser Brad Kingsley.
Moreover, business and company cards are not covered by consumer protections set forth by the Credit CARD Act of 2009, most meaningful perhaps is that issuers can hike card APRs without notice.
“There are many good reasons to split business
Actions from your personal ones, but understand that very frequently the owner
Is on the hook whether the buy flowed through a personal card or not,”
See related: Is my credit score good enough to get a business card? , Handling employee misuse of business credit card
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